Latest / The College Savings Podcast with Fexingo: 529 Plans, Education Funding, and Student Costs / How 529 Plans Cover Your Childs Cosmetology School Tuition
Transcript
- Lucas: So, Luna, something I’ve been noticing a lot lately — more and more students are choosing cosmetology school over a traditional four-year college. And the question I keep getting is, can you use a 529 plan for that? Luna: It’s a great question, because a lot of people assume 529s are just for university tuition. But the answer is yes — under the right circumstances. Lucas: Exactly. The key is that the school has to be an eligible educational institution as defined by the IRS. That means it must be accredited by a recognized agency and eligible to participate in federal student aid programs. Most licensed cosmetology schools qualify. Luna: So if I’m a parent saving for my kid who wants to be a hairstylist, I need to check if the school has a Title IV code, right? Lucas: Exactly right. You can look up the school on the Department of Education’s database. If they participate in federal student aid programs like Pell Grants or federal loans, they’re almost certainly eligible. And that means you can use 529 funds for tuition and required fees. Luna: What about equipment? Cosmetology schools often require a kit with scissors, brushes, mannequins, things like that. Lucas: That’s where it gets a bit trickier. The IRS says you can use 529 funds for expenses that are required for enrollment or attendance. So if the school mandates that you buy a specific kit, that should qualify. But if it’s just a recommendation, it might not. You need to check the school’s policy. Luna: I’ve heard stories of people getting audited over ambiguous expenses. So documentation is key. Lucas: Absolutely. Keep the school’s catalog or policy page that states the kit is required. And keep receipts. The IRS can ask for proof years later. Better safe than sorry. Luna: Let’s talk about the types of cosmetology programs. There’s barbering, esthetics, nail technology, makeup artistry — do all of them qualify? Lucas: Generally, yes — as long as the program leads to a recognized credential, like a license or certificate, and the school is accredited. For example, a barber college that’s accredited by the National Accrediting Commission of Career Arts and Sciences would qualify. The same for an esthetics institute. Luna: So someone training to become a licensed esthetician could use their 529 for tuition at a place like the Aveda Institute or Paul Mitchell? Lucas: Those are both great examples. Paul Mitchell schools, for instance, are often accredited and eligible. I actually looked up one of their locations — they have a Title IV code. So yes, tuition and required fees would be covered. Luna: What about online cosmetology programs? I know some theory can be done online, but the hands-on part requires in-person. Lucas: The same rule applies — the school must be eligible. Some hybrid programs qualify if the school as a whole is accredited. But you have to be careful: the program must lead to a credential. If it’s just a hobby course, it won’t work. Luna: Right, the 529 is for education that leads to a career, not a personal interest. So no using it for a weekend makeup workshop. Lucas: Exactly. The IRS defines qualified expenses as those for a student at an eligible institution. So a workshop that doesn’t lead to a degree or certificate wouldn’t qualify. Luna: I remember a case where a parent used 529 funds for their child’s cosmetology school, but the school lost its accreditation mid-program. What happens then? Lucas: That’s a nightmare scenario. If the school loses eligibility while the student is enrolled, expenses after that date may not be qualified. So it’s important to check the school’s accreditation status regularly. You can verify through the Department of Education’s website. Luna: So due diligence upfront can save a lot of headaches later. Now, what about room and board? If the cosmetology school is away from home, can 529 cover housing? Lucas: Yes, but only if the student is enrolled at least half-time. And the amount is capped at the school’s official cost of attendance for room and board, or a certain amount if living off-campus. For cosmetology schools, many don’t have on-campus housing, so you’d use the off-campus allowance. Luna: And the allowance is set by the school, right? They have a standard student budget. Lucas: Exactly. The school publishes a cost of attendance figure that includes room and board, books, supplies, transportation. You can use 529 funds for those items up to that amount. So it’s not unlimited, but it’s generous. Luna: Let’s bring in a real example. I spoke with a student named Mia who used her 529 to attend the Cosmetology School of New York. She was 19, had about $15,000 in her 529 from her grandparents. Lucas: Great example. How did she use it? Luna: She used about $12,000 for tuition over 12 months, and then $3,000 for her required kit and textbooks. She lived at home, so no room and board. She said it saved her from taking out student loans. Lucas: That’s exactly the kind of win we want to see. And she avoided the 10 percent penalty on non-qualified withdrawals because everything was qualified. She just needed to keep her enrollment verification and receipts. Luna: She mentioned that the school’s financial aid office was really helpful — they gave her a letter stating the kit was required. So that was key. Lucas: That’s smart. If your school can provide that in writing, keep it. And if you’re unsure about an expense, you can always call the 529 plan administrator and ask. They deal with these questions all the time. Luna: One thing that surprised me: Mia also used a small portion of her 529 to pay for her state licensing exam fee. I didn’t think that would be allowed. Lucas: Actually, it can be, if the exam is required for the credential and the school includes it in the cost of attendance. But it’s a gray area. Some plans allow it directly, others don’t. Best to check your specific plan’s rules. Luna: So it’s not a blanket yes. But many cosmetology programs bundle the exam fee into tuition, which simplifies things. Lucas: Right. And that bundled fee would be qualified as part of tuition. So if the school does that, you’re fine. Luna: Now, what about the timeline? Can you use a 529 for cosmetology school at any age? Some students are older, changing careers. Lucas: Absolutely. 529 plans don’t have age limits. So if someone in their 30s or 40s decides to become a barber, they can use a 529 set up for them. The beneficiary can be changed, too. So parents could even open a 529 for themselves if they want to go to cosmetology school. Luna: That’s a good point — the flexibility of 529s is often overlooked. You’re not locked into using it for a child. Lucas: Exactly. And with the SECURE Act changes, you can also roll over unused 529 funds into a Roth IRA under certain conditions. So even if your child doesn’t use all the funds, it’s not wasted. Luna: That’s a recent change people might not know about. But for today’s focus, cosmetology school is a perfect use case. Lucas: It really is. And I think the key takeaway is: don’t assume a trade school or vocational program isn’t covered. Check the school’s eligibility, keep good records, and you can use your 529 for a wide range of education paths. Luna: I’d add that the beauty industry is growing — the Bureau of Labor Statistics projects faster than average growth for barbers and cosmetologists. So it’s a smart career move for many. Lucas: That’s a great point. And with tuition at some cosmetology schools ranging from $10,000 to $20,000, using a 529 can make a real difference. It’s tax-free growth and tax-free withdrawals for qualified expenses. Luna: Before we wrap, I want to mention something that’s been on my mind. These episodes take a lot of research and time to produce, and they’re completely ad-free. If you’ve found our conversations helpful, a small contribution — like a couple of dollars a month — genuinely helps keep them going. You can support us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it’s true. It’s listener-supported, and even a few dollars makes a difference. No pressure at all, but if you’ve gotten something out of the show, that’s the way to keep it going. Luna: Alright, back to it. So to summarize: for cosmetology school, check accreditation, keep receipts, and you can cover tuition, required equipment, and even room and board if the student is half-time. Lucas: And if you’re not sure, call your 529 plan. They’re there to help. Thanks for listening, and we’ll catch you next time.